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Goldman Sachs: The US Dollar Is Far Weaker Than Current FX Pairs Make It Seem
A team at Goldman, decidedly different team from the one which this morning said the EUR could drop to a 1.16 level shortly, looks at recent fund flow data and notes that with the US now perceived as a safe haven to the rest of the world, particularly Europe, a fact which implicitly is a huge benefit to the treasury supply onslaught as buyers for USTs no matter the yield or maturity, are easily found in this environment of insecurity. No surprise there: it is almost as if Europe's problems were engineered, courtesy of a EURUSD which was kept too high, for too long, by too many market participants. Goldman's conclusion is that the dollar is not the fundamental safe haven it is portrayed to be, but is, once again, merely the best of the worst. As Goldman's Robin Brooks highlights: "non-Treasury portfolio inflows are still falling short of covering the monthly trade deficit, in contrast to before the crisis when they were more than enough. This is consistent with our often repeated view that the BBoP (broad basic balance) for the US remains weak and is why – even in the face of strong foreign inflows into Treasuries – we remain cautious about the USD outlook."
Brooks continues:
Foreign participation – both official and private – was 20.1% for the data available for May, close to the historical average of around 17% and down from a peak of 40% in the immediate wake of the global financial crisis. Though this is only an incomplete picture – it ignores the secondary market – it does argue against reserve managers piling into USD. We get the same impression from other data sources we look at, notably Asian reserve accumulation, which also does not point to a sharp shift in favor of USD. We will continue to monitor foreign participation in Treasury auctions, and the broader portfolio flow picture, with a view to revising our USD outlook as warranted.
The primary reason for the increasingly strong bid for gold is explained by Brooks' observation: while unwinds in existing FX carry pairs continue to implicitly benefit the dollar, when it comes to allocating capital to a safe haven, the only recourse continue to be gold. And as FX is fickle, all it takes is one massive short covering spree to invert the balance of power once again in the direction of the EUR: all that would be needed is a wholesale realization that the consolidated US balance sheet is in far worse shape than that of Europe, and for the herd to shift from one side of the boat to the other. Yet should more volatility come into FX markets, gold would benefit even more.
From Goldman Sachs:
- Last week ended with the USD appreciating sharply, on escalating sovereign fears and weaker-than-expected US payrolls.
- This strength runs counter to our forecast, which is driven by an underlying picture of still weak portfolio inflows, something we have emphasized repeatedly in our BBoP framework.
- But the Euro crisis has the potential to boost foreign inflows, if foreigners – reserve managers among them – decide the US is the “best looking horse in the glue factory.”
- In light of this, we review US Treasury data on foreign portfolio flows to the US, which in March registered an all time high. We also survey more timely Treasury auction data for foreign take-up.
- We conclude that the fundamental picture – fear aside – is still not USD supportive and will continue to watch closely for any changes
1. The week ahead
Last week’s batch of PMI’s – pointing to still strong industrial activity in May – initially allayed fears that the ongoing crisis in Europe is spilling over into the real economy. But comments from the new ruling party in Hungary that the country stands on the verge of a sovereign default – unwarranted in our view – and weaker-than-expected US payrolls delivered a one-two punch on Friday that caused the SPX to fall 3.4% and forced EUR/$ through 1.20 to its lowest level since 2006.
Over the weekend, a G-20 meeting of finance ministers and central bank governors stepped back from a global bank levy, acknowledging differences across countries in how – and whether – such a measure should be adopted. The focus today and tomorrow is on the Efofin meeting, at which details of the sovereign SPV structure may be unveiled.
Against this unsettled backdrop, the most important hard data this week are out of China and they will inevitably be parsed for signs of weakness, especially following last week’s – in our view largely seasonal – drop in China’s PMI. We expect IP to grow an above-consensus 17.5% yoy in May, only slightly below the 17.8% yoy April pace, while year-to-date growth of fixed asset investment through May should slow to 25.6% yoy, essentially in line with consensus. Exports should grow an above-consensus 38% yoy, up from 30.5% yoy in April, on a low base, while retail sales growth should inch up in May. CPI inflation should rise in line with consensus to 3% yoy from 2.8% in April. In the US, Friday brings retail sales for May, which we think will grow a stronger-than-consensus 0.5% mom, but excluding autos we anticipate a slight contraction.
The week has a clutch of central bank meetings. Following the release of Q1 GDP on Tuesday (we expect strong, consensus-like growth of 2.5% qoq), we expect Brazil’s central bank to hike 75 bps. Governor Meirelles’ comments at the G-20 summit this weekend betrayed little concern over ongoing sovereign fears elsewhere. We also expect the RBNZ to hike 25 bps on Wednesday, though a hike may be accompanied by a dovish statement, following the Bank of Canada’s recent template. We expect South Korea’s central bank to remain on hold, and the Bank of England and ECB to do likewise.
2. USD keeps appreciating …
The DXY index, a widely followed – if in our view outdated – measure of US$ strength, is now around the same level as in November ‘08 after the Lehman collapse. On a broader trade-weighted basis, the US$ has also risen, though – because EUR/$ has a smaller weight – not as much. We are naturally asking ourselves – as are many others – if this appreciation is simply a repeat of Q4 2008, when safe-haven buying drove USD sharply higher, or if it reflects more fundamental strength. To look at this, we look to data on foreign portfolio flows published by the US Treasury, popularly known as the TIC report (short for Treasury International Capital). The latest release available shows that net long term portfolio flows to the US amounted to $140.5 bn in March, a big turn from net outflows of -$72.8 bn in August 2007 and -$33.1 bn as late as January 2009. Indeed, the March release eclipsed the previous high of $135.8 bn in May 2007, just before the start of the global financial crisis. We next examine in detail whether the TIC data signal rising fortunes for USD, though we caution that the latest available data – for March – predate the serious escalation of the Euro zone crisis from mid-April.
3. But the rise is driven by fear …
Even if total portfolio inflows are once again looking strong, their composition points to weakness. Foreign flows into US Treasuries – at 77% of total net inflows – were dominant in March 2010, while in May 2007 – the previous high for net long-term inflows – they accounted for only 17%. In contrast, net inflows into US corporate debt made up only 11% of the total in March 2010, compared to 58% back in May 2007. Flows into US equities were 8% of the total, far below the 31% in May 2007. Agency debt is the only category where the picture is almost back to pre-crisis levels. Net agency inflows were 16% of the total this March, only a trifle below the 20% recorded in May 2007. Overall, this shift is symptomatic of the global “flight to safety” that has benefitted US Treasuries, which has come in many ways at the expense of flows into other, more growth-oriented assets.
4. ...Not underlying strength
As strong as foreign flows into Treasuries are, we discount their importance for USD somewhat as they may be substantially currency hedged, reflecting in part the steepness of the US yield curve. Indeed, their historical correlation with trade-weighted USD is negative, indicating that Treasury inflows are not a reliable driver of USD strength. Meanwhile, as we have detailed above, other flows to the US are still very weak, notably those with a growth orientation, like flows into corporate debt and equity. It is these flows that – unlike Treasury flows – have a positive correlation with trade-weighted USD and are thus a more reliable driver of USD strength. If we total up private (excluding central bank purchases) non-Treasury inflows to the US and add them to the monthly trade deficit, this in March 2010 gives us a negative balance of -$12.8 bn, far below the positive balance of $37.8 bn in May 2007. This highlights that private, non-Treasury portfolio inflows are still falling short of covering the monthly trade deficit, in contrast to before the crisis when they were more than enough. This is consistent with our often repeated view that the BBoP (broad basic balance) for the US remains weak and is why – even in the face of strong foreign inflows into Treasuries – we remain cautious about the USD outlook.
5. No indication that foreign reserve managers are piling into USD
With foreign flows into Treasuries at all time highs – even if we discount their importance for USD – are reserve managers piling into USD at the expense of other currencies, notably the Euro? For this, we look to foreign participation in US Treasury auctions of longer term securities, which the US Treasury also publishes. Foreign participation – both official and private – was 20.1% for the data available for May, close to the historical average of around 17% and down from a peak of 40% in the immediate wake of the global financial crisis. Though this is only an incomplete picture – it ignores the secondary market – it does argue against reserve managers piling into USD. We get the same impression from other data sources we look at, notably Asian reserve accumulation, which also does not point to a sharp shift in favor of USD. We will continue to monitor foreign participation in Treasury auctions, and the broader portfolio flow picture, with a view to revising our USD outlook as warranted.
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AA is the new AAA.
Hey, I went to AA
But AAA still means you get a free ride if you break down.
Is it free if you pay dues? And yes, they clearly did get a free ride after breaking down, one we are all paying for.
You get free coffee and sometimes donuts at AA, but you have to listen to a bunch of drunks for an hour.
You can leave any time you like -- unless you have a court order! We know why you stayed. Keep comin' back....
They do help a lot of people.
Please God let the dollar stop appreciating...it is really a pile of crap...!
Not our fault!
Denarius Part Duo
Exactly.
Dollar-zilla is raging, and that isn't part of the plan.
Barry Obama strode across the stage, waving and smiling at the audience from stage left. Christina Romer met him at the center from stage right. She was blowing kisses and smiling, always smiling. "Thank you, thank you," said Barry. "Welcome to this years Federal Reserve and Treasurie Master Piece Theatre." "We have a very special treat for you tonight," Romer said, beaming, "Playing the role of Godzilla, Timmah Geithner, and as Mothra, President Hu! This play was writ by the players themselves. Enjoy!" The two exited stage left, smiling and waving, always smiling and waving.
The curtain rose. On a bench sat Hank Paulson and BS. They were smoking thin cigarettes. "Do you believe in fairy tales?" Asked BS whimsically. "Mu, mu, mu, mama always said, dream your da-dreams so they mu-may come true." From stage right came John McCain on a lowrider bicycle. He tooted his horn; it was a Mexican themed one. He then gave a wahcko, "AAAAAAAHHHHH-HA-HA-HA-HA!!! Que pasa gringos." He looked at the audience and smiled a snaggle toothed grin. "We were discussing philosophy." BS took a long drag on his cigarette. "Ah si, that is like, way over my head mayne." He looked at the audience again, with the same grin. "I th-th-thought Ba-Ba-Bawknee was with you?" Then came a loud 'ROOAARR' and Frank came on, dressed in a leather Biker outfit. He had a tiny kitten on a leash. "Did some one say, on yo knees!" "Hey Bawknee," said BS. He gave a wink.
Then the orchistra came in with the Ride of the Valkyries, and the players showed panic! From the sides of the stage came Godzilla and Mothra! "Rar rar rar I'm Godzilla!" Backstage Romer turned to Barry, "That wasn't his line!" She was smiling. "I am Mothla, king of the mothlas!" The two met at the middle of the stage. BS jumped into Bawnkee's arms as the others ran away. "Save me Bawknee." "No pwabwemmo!"
There was a long pause before Timmah turned to Barry, "Line." "Shit I don't know man, I didn't memorize anything." "Just tackle him!" Yelled Romer. So Timmah jumped at Hu, but Hu moved swiftly to the side. Timmah fell on his face. "I think I broke my arm." "Man he can't do nothin' right." Frowned Barry. "I think that it will get better from here." Romer quipped, beaming. "Wipe that damn smile off your face woman. Shit, I'm outta here." The crowd, who had enjoyed the play up until this moment, began to boo.
From the back smoke could be smelt. BS had thrown his cigarette into a trash can. "See if you can boo these doors open." He said as he locked them behind him. "Oh look, flames! They are beautiful!" Romer said while coughing.
Outside, BS met Barry who was driving a '79 Grenada. "Where is the rest of the gang?" "Everybody made it out except Timmah, Romer, and Hank." "Hu?" "I didn't see him." A car screached from behind. It was Hu in a Sierra Hybrid. He leaned out the window and shot with a Colt .45. "Get the f*** in BS!" Hu chased them from the city to the bay. "He is still behind us!" Screamed BS. "Lets see if he can swim!" Barry action rolled out of the Ford. "Oh my gawd no!" Shrieked BS as the car went airborn and off into the ocean. Hu came to a stop on the edge of the dock. "Shit. That morra f***er owe me money."
The night sky was dark, as there was no moon. Hu got back in the truck and drove off.
+1. Like it. "Do you believe in fairy tales?" ;-)
Now if CNBC subtitled interviews in this style, I might actually watch.
Is the dollar really appreciating ... NOT against Gold!
It is a global "fiatsco" race to the bottom.
It is almost as if the rest of the world belives that a US borrower will actually make a mortgage payment. When will they learn?
Mututal funds havent started to panic yet. When they do they'll dump stocks and send the 10yr sub 2% in a frenzy searching for safety. Dollar euro will break parity at that point and then youll see the dollar is far stronger than the fx pairs suggest.
Right now , its a game of dominoes. And the dollar is the last fiat domino to fall. Looking for gbp to take its pain after the momos have got bored of picking on the yo-yo.
During all of this gold may see some margin selling bringing it down a bit , but not much , in all it will keep grinding higher . forget inflation or deflation , its all about confidence.
Mate, GBP is weak ONLY against US$...it appreciated against everything else, due to the fact it seems at least they are willing to swallow bitter pills.
..er, not against real money (Gold) it hasn't, 600 / oz last September, 860+ today.
make no mistake, GBP is sinking like all the rest of them, only some of the others are sinking faster at this point
I can't say I understand that line of thought. Why would mutal fund managers panic? They're playing with Other Peoples Money......
Re-Deposit
Seize and Liquidate Goldman SachsThe Senate hearings, carried on CNBC, Bloomberg, and C-SPAN, represent the first major exposure of the American people to the scandalous frauds of the derivatives casino, including synthetic collateralized debt obligations (synthetic CDOs or CDO²). These are things most people have heard very little about. They begin to open up the shocking reality behind such shopworn euphemisms like “toxic assets,” “exotic instruments,” and “troubled assets.” Reactionaries in general and Republicans in particular have done everything possible to hide the role of derivatives, which must be considered the main cause of the financial panic of September 2008 which brought down Lehman Brothers, Merrill Lynch, and AIG, after felling Bear Stearns in March of the same year. The reactionary legend, repeated yesterday on the Senate floor by financier minion GOP Sen. Gregg of New Hampshire, is that the crisis was caused by poor people taking out subprime mortgages and then defaulting, bringing down the entire Anglo-American banking system and triggering the bailouts. Either that, or too much government spending was too blame.
A mass of kited derivatives blew up in September 2008This Big Lie has come from such propaganda sources as the Limbaugh Institute of Retarded Reactionary Ranting. But the $1.5 trillion in subprime mortgages were dwarfed by the $15 trillion US residential real estate market, to say nothing of the $1.5 thousand trillion world derivatives bubble. But, starting with Bush-Goldman Sachs Treasury Secretary Henry Paulson, the talk has been of a “housing correction,” not a derivatives panic. It must be pointed out that derivatives are nothing but wagers, bets placed from a distance on securities which themselves are often not mortgages, but rather other derivatives. The bettor buying a synthetic CDO or CDO² does not own the underlying mortgages or mortgage-backed securities, any more than someone who bets on a racehorse owns part of the horse. Blankfein and others tried to portray derivatives as a service to hedgers and end-users, but it’s clear that the vast majority of derivatives involve neither hedgers nor users, but only bettors on both side of the transaction. It is in any case this mass of kited derivatives which blew up in 2008, bringing on the present world economic depression.
Goldman Sachs executives are babbling cretinsThe mystique of Goldman Sachs is based in large part on their reputation as the smartest financiers on Wall Street. After today’s hearings, this mystique has permanently dissipated. The Goldman executives babbled. They sounded dumb. They stalled and stammered and went into contortions to avoid giving straight answers to simple questions. They were mendacious and evasive when they did speak. Financial powers around the world will note carefully the refusal of three out of four Goldman executives on one panel to state that they had a duty to defend the interests of their clients. Who will want to do business with such a gang? Goldman Sachs got $10 billion of taxpayer money in low-interest loans under the Bush-Paulson TARP. Part of that money went to pay for obscene bonuses for Goldman executives like the ones on display today. The argument for bonuses is that they must be paid to retain the highly talented personnel, virtual geniuses, who are indispensable for Wall Street speculative success. But these are no geniuses, they are imbeciles. No more bonuses should be paid by banks saved through public money.
Don’t buy any used cars from Lloyd BlankfeinSleaziest of all was Goldman’s risk-monger in chief, Lloyd Blankfein, who pretended not to know that derivatives are often kept hidden off balance sheet. The morally insane Blankfein testified that his role was to provide the firm’s clients with “the risk they wanted.” Other GS witnesses represented the firm’s role as “distributing risk.” But it turned out that they were manufacturing risk through the very existence and activities of Goldman Sachs, which had the result of pyramiding the total risk of the US financial system into intergalactic space. It is time to regulate much of that unbearable risk out of existence with appropriate regulatory legislation. In the meantime, no sane person would buy a used car from Blankfein. Nor should they believe his assurance that the “recession” has ended.
But when at the end of the day Blankfein finally suggested to Sen. Tester that synthetic CDOs might be outlawed, we should accept his proposal immediately.
Today’s hearings reveal the Goldman Sachs gunslingers and whiz kids as ignorant gangsters and con artists, notable only for their ability to practice massive fraud with impudence. These sleazy mediocrities do not deserve bonuses paid for by taxpayers. Rather, it is time to shut them down and put them in the dock.
If Goldman Sachs had cared about is clients, it would have urgently warned them to unload their subprime risk by late 2006 or thereabouts. Instead, Goldman was busily increasing its clients’ risk by selling them more toxic CDOs out of its own inventory warehouse.
Goldman Sachs: bookies who stack the deck and fix the gamesAs the philandering Sen. Ensign pointed out, comparing Wall Street to Las Vegas is a slander on the croupiers of Las Vegas, where everyone knows or should know that the game is rigged so that the house always wins. To use the comparison introduced by Sen. McCaskill, Goldman Sachs was operating as the gambling house, or the bookie. At the same time, Goldman was betting for their own account. But much worse was the fact that Goldman was stacking the decks, loading the dice, fixing the games on which the bets were placed, and bribing the umpires.
As Ensign put it in a rare moment of lucidity, the subprime mortgage was bad. But the collapse of subprime would not have had anything like its actual destructive effect on the US economy if it had not been compounded by the mass of synthetic derivatives that were piled on top of subprime.
No national or social purpose served by Goldman Sachs and toxic derivatives betsThe broader issue raised by today’s hearing is: what human purpose is served by the existence of Goldman Sachs, which concocts toxic synthetic CDOs for the purpose of allowing speculators, who are often lied to and duped, to bet for or against them. Goldman Sachs can only be described as a speculative parasite which promotes the activities of other speculative parasites, such as the John Paulson hedge fund at the expense of the public and of its other clients. It was a crime to inject $10 billion of Treasury money into Goldman Sachs. It was another crime for the Fed to lend Goldman untold billions (just how many billions Bernanke still refuses to disclose) to keep them afloat and enable more predatory profits. These crimes must stop, and the public money must be clawed back. Most important, it is time to shut down the derivatives rackets.
Goldman got $12.5 billion from taxpayers for AIG credit default swapsUseful questions from GOP Sen. Coburn pointed to another kind of derivative: the infamous credit default swap (CDS). These CDS are what brought down AIG, whose London hedge fund had issues $3 trillion in derivatives. When the government bailed out AIG, part of that $180 billion of taxpayer money was used for payouts to the CDS counterparties of AIG, biggest among them Goldman, which got $12.5 billion from the US taxpayer. That was 100 cents on the dollar on a mass of toxic CDS. Coburn wanted to know why Goldman got all their money back, while GM bondholders took a bath as GM went bankrupt. That was, of course, a matter of Goldman’s political clout through GS alum Henry Paulson and Obama Car Czar Steve “The Rat” Rattner, backed up by the historic preponderance of finance capital over industrial capital in this country since Andrew Carnegie sold out to JP Morgan over a century ago.
Derivatives and zombie banks: the tollThanks to Goldman Sachs, the other Wall Street zombie banks, and their derivatives, the financial panic of 2008 has turned into a world economic depression of unimaginable proportions. The unemployed and underemployed in the US alone are surely in excess of 20 million. Five to six million home foreclosures are already done or in the pipeline, throwing tens of millions of Americans out of their homes. World trade has been seriously impacted. The budgets of California, New York, Illinois, and many other states are in crisis, with massive layoffs of teachers and other state employees. An entire generation is being destroyed. Now, Greek bonds are trading at junk levels under the attack of speculative predators including Soros, Greenlight Capital, SAC, and the protagonists of today’s hearings – Paulson and Co and Goldman Sachs itself. The attack on Greece and the euro represents the leading edge of the second wave of the depression, which is now arriving in much the same way that the second wave of the 1930s depression was unleashed by the Vienna Kreditanstalt bankruptcy in May of 1931, about 79 years ago and just a year and a half into that depression.
The goal of the Republicans is to portray themselves as stern judges of Wall Street, even as they line up in a unanimous phalanx to protect the finance jackals from any meaningful regulation whatsoever — as seen in yesterday’s vote to block cloture on derivatives re-regulation and reform. The goal of the Democrats is to expose the sociopathic evil of Goldman Sachs and the rest of Wall Street while preening themselves as defenders of the public interest, without however banning credit default swaps, banning synthetic CDOs, and imposing a Wall Street sales tax on all remaining derivatives and asset transactions.
To this degree, today’s hearings are being conducted in bad faith by both major parties. However, the dynamic of the resulting spectacle has the result of educating and mobilizing public opinion against the predatory practices which are the essence of Wall Street, even a year and a half after the banking panic of September 2008 and the monster bailout of zombie banks which soon followed. What is required is a new edition of the anti-banker sentiment set off by the Senate Banking Committee hearings conducted from January 1933 to May 1934 by committee counsel Ferdinand Pecora, which unmasked the corruption of Wall Street. Persons of good will need to get active now to push this process as far as possible while these social dynamics are working. It is time to hit the zombie banks, the hedge funds, and their derivatives as hard as possible, before the second wave of the depression hits. The program necessary to fight the depression and break the strangle-hold of Wall Street on the US economy and political system is given on my web site.
Mitch McConnell on the bailout: “Harry, I think we need to do this, we should try to do this, and we can do this.”During a break the senators filed out, and the GOP reactionary lockstep once again blocked cloture for a final debate on the Wall Street reform bill, weak as it is. Many activists of the Tea Party naively believe that they have been fighting for a year and a half that they have been fighting to take back the Republican Party. If that is what they believe, today’s second cloture vote proves that they have gotten nowhere in their efforts. Despite their charades, the GOP are the bodyguards of the Wall Street predators. Tea baggers who think they can break the Wall Street grip on the Republicans are pathetic dupes, and they need to wake up, pronto.
When Paulson went to the leaders of Congress to demand a $700 billion bailout for Goldman and his Wall Street cronies, GOP Senate majority leader Mitch McConnell was “deeply frightened” by the apocalyptic briefing delivered by Paulson and Bernanke. When Democratic Majority Leader Harry Reid started talking about how difficult it would be to get so much money in a hurry, McConnell urged an immediate bailout, saying: “Harry, I think we need to do this, we should try to do this, and we can do this.” (Andrew Ross Sorkin, Too Big to Fail [New York: Viking, 2009], p. 442) The GOP was the original party of the bailout, and they have not repented, as best seen through the continuance of McConnell, one of the key midwives of the bailout, as Republican Senate Majority Leader. This is the same McConnell who went to Wall Street recently to meet with zombie bankers and hedge fund hyenas, pledging to block derivatives reforms in exchange for big bucks contributed to the GOP’s campaign coffers. Tea baggers who think the GOP has changed or is moving to their side are sadly deluded.
Now that Blankfein‘s public image has been soiled by Goldman’s scurrilous and scatological emails, the time is ripe for the radical reform of derivatives and the zombie banks. This is a matter of national survival.
Now that Goldman Sachs is masquerading as a bank holding company, it is subject to FDIC rules. If Goldman’s derivative hoard is marked to market, it is bankrupt. The FDIC should therefore seize Goldman and liquidate it under chapter 7 of the US Code. Sheila Bair should not wait for Friday.
Just to add one more thing to your elegant comment!
Dick Cheney threatened the Democrat Leadership with Martial Law if that
700 billion was not approved without delay or defiance.
Yeah, I'm sure they took that threat very seriously.
Two wings of the same bird of prey. Period
....in other words, the Squid is just a bucket shop with very big buckets.
Excellent, Geo.
Their buckets are the same size as everyone else's, they're just using a forced perspective to make them look bigger.
RM,,,Thanks,, We physiologically diminish their power with our disdain,,,but,,,don't underestimate their power as it can kill civilizations....You got it,,,large BShop. I remember Steele talking about .0006 tax on the fed and then liquidating them,,,nice plan..backdoor to killing GS..
Seriously? The f'ing FDIC was in on this too.
That's why I indicated the FDIC SHOULD, Liquidate,,,,,,GOLDMAN,, Guilty by inaction.........any more help?
Be cool Geo, some folks are just learning. Heck of a post up there.
Major Key Tonality
Avatar,,,Needs to learn,,, before counterpoint is presented,,,No?
Why aren't these crooks in jail?
Because we live in a creeping coup of insurrection against constitutional law,, from beginning to end...
I am afraid that Goldman is staging a bank buy (after it has been cleaned up and sanitized by the FED and FDIC) at a bargain basement price and start attracting depositors.
If that happens in conjunction with settling with the SEC, the stock will go to the Bove projected $190.
The squid is slipery and as you know from bio class, cepholopods sport three hearts.
We gonna need three large wooden steaks to kill it.
Like I said.....
Because we live in a creeping coup of insurrection against constitutional law,, from beginning to end...
Who amongst you dare junk geopol sans rebuttal? Stand and be counted you coward or get back in line.
THE Coup-"Me and Jesus the Pimp in a '79 Granada Last Night":
http://www.youtube.com/watch?v=OMsEDX9IosU
Nice post, thank you.
Was this a post regarding a GS call, or the Zero Hedge manifesto?
GS???
Deze fucking guyz???
http://www.ritholtz.com/blog/2010/06/goldman-sachs-reputation-destructio...
http://online.wsj.com/article/SB1000142405274870330390457529253005731381...
Unfuckingbelievably farcical...
Deze guys are Financial Warlords???
No balls to be found anywhere because it is all theater.
The cops have become pussified. If they were for real they would roll up heavy on their asses, intimidate, and use those jack boots of theirs to get some real results.
WE HAVE THE RULES WE NEED, THEY NEED TO BE ENFORCED!!!
Are there any REAL cops out there watching this shit that would like to comment? Any REAL prosecutors? Not folks paid to act like one on TV, the web, and in the papers.
MsCreant,,,Your moving towards the truth at light speed....be careful...You know when to duck, right??? I'm evading bullets every day dear..
Geopol, could you elaborate?
On what?.. precisely??.. The post above??.. MsCreant???.. Lot of questions..Your move..
How about this part........
I'm evading bullets every day dear..
Just curious.
About evading bullets.
I have been telling the truth as I research it...It has cost me....Do you folks have any idea how this can inflict harm on your sense of freedom?? And recalibrate you approach to reality??
Try being a lightning rod.....
Excellent post.
geopol - Thanks for the update and review on these important Congressional hearings that shine a light on the notorious Goldman Sachs gang. I hope these hearings will uncover more evidence that prosecutors can use to bring all the past and present GS principals to justice and hard time prison sentences.
I hope the Congressional hearing will subpoena the Godfather, Hank Paulson, to testify about his culpability for any crimes he may have committed during the years he was Chairman and CEO of Goldman Sachs up to mid-2006, when he left to become U.S. Secretary of Treasury.
I hope the Congressional hearing will subpoena the GS mole, Hank Paulson, to testify about his culpability for any crimes, such as criminal conflict-of-interest, he may have committed as U.S. Secretary of Treasury.
The Congressional hearing could call the Godfather, Hank Paulson, GS CEO, to testify on the first panel in the morning. The Congressional hearing could call the GS mole, Hank Paulson, U.S. Secretary of Treasury, to testify on the second panel and ask why U.S. Secretary of Treasury Hank Paulson did not investigate and refer for possible prosecution Goldman Sachs CEO Hank Paulson.
tom a taxpayer....Although you shouldn't really...
It's my pleasure...let's continue to share and beget freedom!!! BROTHER..
Bullshit, GS is just playing mouthpiece for Geithner and the ECB. The Euro is about to implode and they are afraid the DX train might embarrass the TGV.
EURUSD stands for Eurodisney, right? I thought that was the happiest place on earth?
ANd, equity_momo, I think a shit load of mutual funds have liquidated already. I don't know percentages, but the outflows have been huge for several weeks. The formerly contrarian indicator
In the land of the blind, the one-eyed pyramid is king.
Nice.
+100.
ROFLMAO
GS Cohen -Squid Witch- says "Recovery on Track, Worst Priced In: Goldman's Cohen."
She is trying to second GS Jimbo O'neil helping GS in dumping its longs on his mort customers.
The Squid makes me pucke.
Managing multiple international ponzis must be a real bitch for the CBs. No sooner do they disable one snake when another viper already has them by the ass.
"Brace for impact"........Captain Sully
what we need
http://www.youtube.com/watch?v=iqnMrynpq9U
I don't believe it! I agree with something GS has said!
DavidC
Yeah. I agree with this too. The dollar is going to get a nasty wake up call. But it may only come in the form of a wicked asset bull.
http://www.youtube.com/watch?v=MSHr4ubuD64
"We're worse off than you guys, no really!"
"You can't LEAVE us up here!"
"Race you to the bottom"
"HE started it/It's all Johnny's fault"
"Last one out, turns out the lights!"
I got one more:
"What's that smell?" "Extra Depends? ...Anyone?"
"Do I smell smoke?" "Is something burning?"
in other words, gold is much cheaper than it appears.
JPM's derivative book dwarfs everyone else's. Dimon, Blankfein, and Dudley at the NY Fed are running the show. In other words, it's not Bernanke, Geithner and Summers. They take their orders from those other guys.
Sounds like somebody has a "man crush"!
Not that there's anything wrong with that....
Your avatar should be the bag, only put a curly triangle on it, know what I'm saying?
Yeah. A crisp bikini cut.
USD == One Eyed Man
Every other fiatco == land of the blind
Oops, that doesn't seem to be factored into Bennie's "re-flation" plans, though.
Michael Feroli of JP Morgan now shows his desperation, even worse than GS. JPM is about to freaking collapse so hard it will make Lehman and Bear Stearns look like chump change. This truly shows how these overleveraged and derivative maxed bankers are getting very desperate.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aLbuYgS_cC5Y
Okay. That was spun so hard I got dizzy.
Do you think that was the right link?
brace, Brace, BRACE.
Goldman = Liars.
The only 'pair' that matters in god's green Earth is the dollar/crude pair.
Priced in crude the dollar is valuable.
Goldman knows this they are just talking their book (lying).
There's no fucking flight to quality ROTFL, the dollar???! QUALITY?
HAHAHAHAHAHAHAHA
No, cretins, it's a carry trade unwind, reversal of decades of dollar credit expansion.
Typo; Goldman Sachs: The US Dollar Is Far Weaker Than Current FX Pairs should make It Seem
The German government is now fully committed to escalating its ongoing counterattack against international financial speculation. These moves represent an historical watershed as Germany becomes the first major economic power to roll back the tide of financial globalization, under which crackdowns on hedge funds, derivatives, and the world gambling casino were branded as taboo for national governments. German Finance Minister Wolfgang Schäuble has announced that the Merkel government is sending a draft bill to the German parliament (the Bundestag) targeting “turbulence” and “volatility” through further regulation of “certain transactions [which] amplify the crisis.” The bill reaffirms the most fundamental German measure enacted so far, the May 18 blanket ban on all naked credit default swaps issued against the treasury bonds of the eurozone nations. This ban represents the most aggressive move anywhere in the OECD against these most toxic derivatives, which have figured prominently in the AIG bankruptcy and the recent Goldman Sachs Abacus scandal. They are also the derivatives being widely used by hedge fund hyenas and zombie banks to attack such nations as Greece , Spain , and the rest of the Southern tier of the euro.
The naked CDS ban protects euroland government bonds, To that would now be added a ban on the naked shorting of those Euro zone government bonds themselves. This means that a speculator wishing to sell a Euro zone government bond short must own that bond in advance. This makes speculation more complex and expensive, and is all to the good.
Schäuble’s new measures also expand protection for certain stocks and for the euro itself. The draft bill would outlaw naked shorts of all German stocks, meaning stocks whose primary listing is at a German exchange. The original May 18 package had banned naked shorts against a list of 10 large German banks, insurance companies, and reinsurance firms. The obvious next step is to ban naked shorting of stocks altogether. From now on, speculators who wish to short German stocks must own those stocks before they sell, making it more difficult and costly for said speculators to operate. The new draft bill would also outlaw the naked shorting of the euro itself in the foreign exchange markets. The Bundestag needs to approve this bill on the fast track, and then do more.
Tiny Tim Geithner’s US Treasury is attempting, but not succeeding, to conceal its apoplectic hysteria over the German ban. Geithner announced that he was flying from China to Europe in order to confer with George Osborne, the new Bilderberger Chancellor of the Exchequer, and Bank of England boss Mervyn King in London, followed by consultations with European Central Bank chief Trichet and Bundesbank leader Axel Weber in Frankfurt, followed then by a meeting with Schäuble in Berlin. There was no doubt that the overriding purpose of Geithner’s mission was to sabotage the German moves against derivatives in particular and speculation in general.
An unnamed US Treasury official speaking off the record on condition of anonymity told Dow Jones that the German ban on naked credit default swaps was “damaging to the market and counterproductive.” The band was “one-sided,” he added, making clear that Geithner & Co. did not expect the German ban to be adopted on a large scale. Geithner was evidently deeply concerned that the German ban might be imitated by some of Germany ’s closest economic partners, including the Netherlands , Belgium , and Sweden , as well as by other nations much farther afield. Who was the anonymous official? It might have been Tiny Tim himself, or it might have been Mark Patterson of Goldman Sachs, Geithner’s chief of staff and chief lobbyist for carbon offset boondoggles.
Spain is an example of a country which would have been very well advised to join in the German measures when they were first proposed. Observers have noted with some astonishment that the self-styled “socialist” Zapatero of Madrid is unable or unwilling to embrace the measures against the casino economy which the center-right Christian Democratic/Liberal government in Berlin is actively pursuing. The explanation is obviously that the Socialist International as a whole (with figures like Papandreou of Greece and Socrates of Portugal, as well as Zapatero) is acting as an abject puppet of the financiers.
Spain is now paying the price for its inaction through an incipient banking panic emerging on the weekend after the German ban was announced. The Caja Sur, a savings bank representing about 1% of the Spanish banking system, became insolvent, quickly followed by eight banks over the next three days. This meant that the hedge funds had succeeded in spreading the Greek contagion, thus raising questions about the short-term survivability of such overextended speculative operations as Banco Santander and Banco de Bilbao. The Spanish parliament approved a draconian austerity program by a single vote, offering the lunatic spectacle of a country already mired deeply in economic depression, with an official unemployment rate of 20%, embracing its own self-cannibalization with a deflationary austerity program in the vain effort to regain the confidence of international financial markets and investors. Spain needs to understand that there are no “markets” today, but only oligopolies and cartels. They need to understand that they are dealing with ruthless speculators, and not with investors. They might as well try to regain the confidence of Bonnie and Clyde , Dillinger, and Ma Barker.
Another country that urgently needs to join the anti-derivatives front is Italy , where a large-scale debate on economic populism broke out on the weekend after the German ban. The financiers Franco Debenedetti and Paolo Savona, camouflaged amidst a group of free-market quackademics, are desperately campaigning to convince Prime Minister Berlusconi to maintain the sanctity of hedge funds and derivatives. My answer to these market fetishists appears below. Berlusconi is moving in the wrong direction on draconian austerity with the €30 billion package of cuts which he has presented to the parliament. If this is all Berlusconi has to offer, the Italian economy is in danger of entering a death spiral in which tax increases and cuts to spending and public services inevitably cause rising unemployment, falling real production, and constantly lower government revenue receipts. Berlusconi should concentrate on suppressing speculation and on launching a recovery program, not on austerity.
Reactionary commentators around the world continue to parrot the line that the great crisis is a crisis of the welfare state,” and spells the doom of any and all government measures designed to defend and secure the health, education, and welfare of their respective populations. The Greeks, we are told, are “profligate.” This legend of the profligate Greeks conveniently ignores the fact that Greece is the second poorest nation of pre-1990 Europe – only Portugal is poorer. The Greeks have 18% official unemployment, with 20% of the population living below the official poverty line. The average Greek office worker earns about $1500 per month, or barely 40% of the wage level of their German counterparts. And the average pension for Greek government worker is about $750 per month. This is hardly a king’s ransom. Greece is also an example of one of the peripheral countries where the depression first began to hit. Greece is heavily dependent on tourist revenue, which began to decline sharply in 2007 and 2008 as the world derivatives panic began to lash Germany and northern Europe , spelling fewer foreign visitors on the Acropolis and on Mykonos and the Dodecanese .
The pro-financier ideologue Robert Mundell, speaking in Warsaw , has voiced his evaluation that a restructuring of Greek government debt is now inevitable. The Greeks and many others would be well advised to act on this advice immediately. For many of these countries, it is already obvious that their current debts cannot be repaid in the physical universe as presently constituted. For them, default is simply an inevitable necessity, not a choice. Their only choice is now when they will default, and with what strategy. In this regard, their choices are essentially two. On the one hand, they can destroy their national economies, dilapidate their capital stock, and destroy the living standard of productive working families through criminally stupid austerity programs and budget cuts of the vandalistic type dictated by the monetarist crackpots at the International Monetary Fund, European Commission, World Bank, Bank for International Settlements, and similar institutions. At the end of all this unspeakable torture of austerity, they will find their political institutions destroyed, their internal governability and stability deeply compromise or totally wrecked, and their ability to pay lower than when they started. At the end of all this, they will default anyway, and drift like derelict wrecks on the world ocean. Many of them will fall under dictatorships, or even fascist regimes.
The alternative to this nightmare scenario is to use the time-tested weapon of the unilateral financial debt moratorium as a means of national survival and national sovereignty. (If Republican US President Herbert Hoover could successfully propose an international financial debt moratorium among Germany, France, and Great Britain, and the United States in June 1931 to fight that depression, this approach cannot be regarded as wild radicalism.) This freeze on all payments of interest and principal on international financial debt must be conducted in an orderly, legal fashion, fully explained to the population and presented as an integral part of a strategy for national economic recovery. Plans should be made in advance for suppressing financial speculation, while mobilizing domestic economic resources for the most ambitious projects of national public infrastructure as a means to radically reduce unemployment and poverty. Raw materials must be secured in advance through barter deals and other ad hoc arrangements with the relevant countries, and these transactions must necessarily occur outside of the straitjacket of IMF and World Trade Organization rules.
Countries using the weapon of debt moratorium should normally be able to reduce their foreign debt exposure by about one half. If they play their cards correctly, they can do even better for their people.
Every country needs to identify at least one area in which it can produce the most advanced high technology capital goods for export, and strive to become the world leader in that department. This production must be capital-intensive, energy intensive, and high value added, and it must target the world export market. The goal is to produce something which the world will find simply indispensable, independent of whatever protectionist measures may or may not be enacted elsewhere. This effort can be used as a science driver along with other science drivers to restart scientific discovery and technological research and development throughout the entire national economy. This is the kind of strategy which the leaders of the southern tier nations of the euro should currently be elaborating.
And they need to act fast. By September, the tide of financial panic which is now engulfing Greece and Iberia will be in the suburbs of Paris and London .
Flag as junk??? Let's get it on,, you hide behind one mouse click??....You will define what ZH can be exposed to...You are the totalitarian..
Worry not Groucho, some of us read and enjoyed the post. Tyler et al will ignore the junk tags if they don't apply. ZH is a great place and is tremendously educating for mental midgets such as myself.
You write too well to worry about being junked.
Liked it. Junked you. ;-)
Geo,
Make a post out of this. It deserves more than to be in the comments.
I agree with the spirit of your comment, but I don't think there will be unilateral disarmament, because debt the weapon of choice; mutual destruction is inevitable.
It would seem that he already has a whole website of his own (http://tarpley.net/).
Should I thank you,, or not?? We try to be hidden here...Thanx for the uninvited exposure,,,
If you didn't want "uninvited exposure" maybe you ought not have linked to your own website, above. No?
It is almost like he wanted to be caught.
Did I??? How self centered.... But I'm not sure..... So you are now subordinating my post as inferior to yours? OK... Let's have at it...Or should I link to them for your leisure, as you are tasked with reading long posts publicly with timely responses that matter,? And accuracy?
Yea I figure it wouldn't hurt to doppelganger it over here on ZH.
He could shamelessly plug his own site or drop his name but he's not here for that. Instead he gets junked by some f*tards because they don't have the attention span to read through his comments.
Well, that's fine - after all who am I, who hides behind a pseudonym, to complain about that?
But FWIW I junked this one because I cannot for the life of me, after reading it through 3-times, figure out what the heck it has to do with the subject of "Tyler's" post.
You'll have to trust me when I say that I don't automatically junk posts I don't agree with - only when I think they're wildly OT. Which is what I thought the "junk" button was for in the first place (otherwise it would be a "disagree", right?)
Get 'em doc, don't stand for that shit.
Get 'em doc, don't stand for that shit.
HAHA A bystander.. egging on the sudo front runner....
OT is the norm here....Are you sleeping?
Wow, that's some transparently thin skin you got there, Web. Good luck with that.
YOU moron! Sometimes info divulged here can have really, really bad repercussions for those who reveal it. The reason for anonymity, in some cases.
Well, that's fine - after all who am I, who hides behind a pseudonym, to complain about that?
Tell me..
BTW, excellent post.
Thanks 400819 buddy...
lol, yes
T. I listen to you on rense, etc. Keep speaking and writing your truth, even if some of us, such as myself, do not agree. Personally, I enjoy how you challenge my preconceptions, and are a refreshing breath of air in a media environment dominated by mediocrities and shallow media personalities.
Dude, save the junks for the trolls and the ones who you vehemently disagree with. To junk any post with that much thought and effort put into it, does a disservice to the concept of rational debate.
I doubt Leo and I could ever agree over what to put on a pizza, let alone global economy and politics. But I don't junk his posts, because he thinks them through and makes an effort to provide us with facts to back them up.
Funny how a rousing chorus of "Gold Bitchez" can get +1000, but someone who invests himself in an opinion can get the shit junked out of him.
Not to mention the fact that >50% of the posts at ZH seem to get hijacked, and travel NOWHERE near the OT.
ColonelCooper....
Four cheese and mushrooms.....Do we agree?....Thanks pal..and Leo, for the counterpoint that gets you energized... That's what it's all about here at the ZERO..
Weak - GeoPol is OT as in on topic. The topic is FX. Naked short ban in particular was a response to EURUSD.
Germany taking on [or at least trying to break free of] the bankster mafia is FX news.
Bringin It.....
Thanks....keep it coming or Bringin..It
WEAK!
I junked you.
You are awake...Slew...Thanks
Well "Groucho", may as well start how I plan to finish...reading this comment it sounds like everything was sort of gonna be ok except for those damn short-sellers....
I like the shorts...they seek out bullshit and sell it out...is my simple view. Does that do damage to a lot of people...yes it does. Were those people innocent...mostly not.
Though I agree with a lot of what you say on your site I don't like the vibe you give off...you seem to know what's best for other people. Well, see if you can get voted in.
Until then, I prefer that the present political class is subject to some sort of ultimate control...and if that has to be by wolf-packs well so be it. You seem to be defending the status quo...which is at odds with some of your other comments.
Apart from that, all the best.
Well,,,,Thank you!!!!
I have to agree that there are segments in time when I diverge from the general thesis...and tend to defend the FDR escort...However I have a well kept private contention / secret,, that I will divulge now,,,,The Austrians have a point...as far as it can be extended in the real environs...should we hope??? hope can be a difficult engagement...
"Every country needs to identify at least one area in which it can produce the most advanced high technology capital goods for export, and strive to become the world leader in that department. This production must be capital-intensive, energy intensive, and high value added, and it must target the world export market."
Ooooh, ooooh I know! Why don't we create "financial products" here and ship them abroad. We can cram a bunch of debt together and call it fancy things like tranches, CDO's and the like. Then, we folks have buyer's remorse - we can sell them "insurance" on their purchase (CDS)!
Do I win a prize?
Breaking news from Ben: Fed Bernanke: U.S. double dip not likely
Not exactly comforting.
Kind of like he claimed housing prices were not in a bubble...
Thank god, things worked out really well once he let us know "subprime was contained."
And thank God it never spread to the broader economy!
Damn, that could have been ugly!
What was the topic again.
***Inserts imperial credits into the arcade.****
Ahh shit, here comes my U.S. dollars! Suckaaaaazz
Is Gold ever "Overbought" ?
NO!
I don't know, can you ever be too wealthy?
Bernanke out begging again this evening. How many times can you be wrong and still say you are right? Since he is so confident, is he willing to put his job on the line? Of course there is no double dip recession, there never was one, it was straight to depression. Who believes anything the government says anymore anyway? We all know they can't tell the truth if GOD was standing before them in person.
w
Wait till the layabouts see what "Austerity" means for them.
http://www.bbc.co.uk/blogs/thereporters/gavinhewitt/
I see total civil disobedience in the cities and spreading to the burbs.
Their about to get that change they were talk-in about!
Bernanke says the fed may have to raise rates before full employment achieved...
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTyC8Xdt_CWw&pos=6
I guess so unless he plans on not raising them for the next 10 years...
http://www.youtube.com/watch?v=5D0VhS8qXT0
A quick laugh...
You met me at a very strange time in my life.
How could the dollar not be overvalued?
Isn't almost every major state economy in the United States bankrupt? The 8th largest economy in the world (CA) doesn't know what to do but layoff every other state funded worker.
I guess Bridgeport, Stamford, and Hartford are so fucking poor it was enough to have the HF capital of the world downgraded. New Canaan, Darien, and Greenwich aren't even rich enough to float the shit weighing down that state.
Buy dollars? Kiss my dick.
Great post. Clearly understood. You have great interest in your dick.
So, when you went down to the corner to trade with Jamal, the friendly pharmicist, how many free range goats did you have to pass over to him to get the deal done?
What the fuck are you talking about?
What most of these sell side analyst fail to understand is that there is a massive shift going on in America which will be realized in the fall elections. Americans are sick of deficits and they will elect people -Repubs/Dems/Tea Party - whomever that will be more fiscally conservative. It is happening in Europe and will happen here too. THe markets are sniffing this out. It is bad for stocks, good for bonds, bad for commodities and bad for China. THe hedge to this move is gold. If the elections do not move the US in that direction, it is good bye to the dollar.
Oh - Bernanke, he is an idiot.
... a massive shift going on in America which will be realized in the fall elections
Ever the optomist, you forget about the
creeping coup of insurrection against constitutional law
I predict many of these saviours bringing change, will turn out to be Trojan horses.
If it NOT foreign central banks buying the US Treasuries, who is supporting the issues and price?
Could it be the US Central bank and the man named Ben?
rates worldwide are low - deflation and the ongoing contained depression
The absurd lack of logic in an argument that pits one FIAT against another is ridiculous. It is an absolute waste of time to deduce strength using a straw man. So the Euro is collapsing? So is the doelarr!
It is like this: Picture four sinking ships in the middle of the Pacific a few hundred years ago; their names- The Sterling, The Yen, The Euro, and The Doe'larr. There is no way for them to send for help. They have lifeboats, but only enough for 1% of each crew. After the 1% get in their boats and row, the rest jump from ship to ship anticipating which ship will last longest. Ridiculous when they are all headed to the bottom of the sea, isn't it?
Yes it is!
And to think people are trying to collect more and more of this fiat junk!
Gold is up 30% yoy........just sayin.......
Once again we see the FED manipulated the numbers in March only to revise it downward by an astronomically number, now they are claiming an increase again for Apr that will of course be revised downward huge next month. The lies this government continues to spew is not helping and only hurting this economy. Can they ever tell the truth at least once?
http://finance.yahoo.com/news/Consumer-borrowing-up-apf-1087475036.html?...
Dear All, I think you're missing it but it's after midnight and the euro is trading closer to 1.20 than it is to 1.16. I think the market is beginning to see that the emperor has no clothes. It's the Euro guys who are not printing and cutting their budgets. It's the euro guys, or at least the Germans who get it. The euro is strengthening against the dollar. Or if you want, the dollar is weakening against the euro. The end game is in sight!
It will be interesting to see if you are right. I don't know though...
I made comments on another thread a while back that if Germany owned the situation and got transparent, yes there would be pain, but they would get out of the crisis first and lead the whole shebang. But can any of them? Or more importantly, can any of them stage enough to convince the rest of us that they have done that?
When the railway workers are still announcing strikes there will not be any adjustments.
But gold in euros is rising like gangbusters. What does that say about the strength of the euro?
I know you guys will probably slaughter me for this but I would like your opinion anyway!
Modern Monetary System, Banks, Money Supply, Recessions and Depressions
Modern monetary theory seems almost too good be true. It seems as if "one is getting something for nothing". Too many people who understand and write about modern monetary systems are very professor-ish and don't really answer the basic question: How can one get something for nothing?
We do get something -- a lot, actually -- for very little effort. How?
All goods and services (i.e., wealth) creation involves not only production (the engineering part) which is easy to see but also exchange (i.e., trading of one’s produced output for produced output of another person). The exchange part is hard to see unless one is involved in barter. Getting money for one’s produced output and buying other people's produced output with that money is just an extremely efficient form of barter. Therefore, going through this thing called "money" makes barter (trading) extremely efficient. So, there you have it. One is getting something (one becomes extremely efficient at barter) by using fiat money that costs very little to produce.
Of course, the producer (the seller) must trust that the money received will retain its value over time to a sufficient degree. This is the main challenge of all currency management by governments or anyone else: Maintain the trust.
Currency failure occurs when this trust is compromised (actual rampant inflation or an expectation of rampant inflation).
But we have major problems with fiat money: Who gets to create it? How much should be created or destroyed and when? And once created how should it be introduced into circulation? And if some money needs to be destroyed, whose money should be destroyed?
Once one realizes that 97% of economic exchanges (trade) is done using bank deposits (yes, bank deposit=modern money) then one will begin to see why banks are so important because they create (and destroy) and distribute (by lending) this very important commodity. It is a common misconception that governments create money (yes, they create some, called base money or cash - coins, paper bills, reserves at the central bank) but most of it is created (or destroyed) by private banks as they are able to leverage (pyramid) up to 10 or more times the government created money or deleverage and destroy money.
It is this private banking industry’s money creation or money destruction that enables booms (more money creation via more lending) or recessions (less money creation via lending less) or deflationary depressions (credit crunch--very little lending). One way to counter a recession or a credit crunch is for the government itself to create money (or borrow) and spend it (fiscal stimulus or even bailouts or purchases of crap assets by the central bank, etc). This is an attempt to counter the money destruction (money is destroyed as loans are paid back by borrowers and new loans don't entirely replace the destroyed money). This is what Japan (since 1990) and U.S. (since 2008) have been doing.
Both governments are waiting for the credit crunch to go away and more normal private (bank) money creation (i.e, lending) to resume. Which many people think will not resume until bad debts are wrung out of the world economy (i.e, take the hit of a worldwide deflationary depression). A worldwide deflationary depression (I think) will lead to much, much chaos and probably wars and extreme poverty.
But I think that there is another way. We need to modify the process of money creation and distribution itself so the real economy (trade) is not so severely impacted (one major reason for extreme booms and depressions is severe changes in money supply that occur due to too much lending or too little lending).
Summary:
1) Money is extremely useful because it greatly facilitates trade.
2) Fiat money can be created very cheaply and there is no problem keeping up with demand for money.
3) Most money creation (by far) is performed by private banks.
4) Decline in the supply of money (electronic scrip=bank deposits) in the economy greatly hampers trade.
Here is my proposal:
a) Remove government bank deposit protection insurance schemes (e.g., FDIC deposit insurance) and allow “Free Banking”. Allow banks to fail. This will greatly reduce the ability of banks to create bank deposit private money.
b) Give the public the option to “store” money electronically risk-free in a government owned bank which can only “store” electronic money and clear checks but not lend it out. 100% reserve credit risk-free money storage for a small fee.
c) Allow new money creation in all forms (coins, paper bills or bank deposits) by the treasury department.
d) The new money should be put into circulation by spending it on legislature approved government expenses and projects.
e) The object of the government will be no deflation and no inflation (stable purchasing power). I realize purchasing power is hard to measure and the process can be gamed by the government but benefits are so great that this risk should be taken and managed.
f) If inflation ensues the government can tax and destroy the money.
g) If deflation ensues then the government can create new money and spend it on legislature approved government expenses and projects.
Umm, communism, no?
If I am a small business and I want to expand, where do I borrow the money to do that? Private banks lending charges will be very high, impossible for me to fund, in your scenario. Or I have to get my plan approved and put into govt. legislature?
I think your plan would destroy trade and the real economy, not support it.
I think you have to much faith that the govt knows the correct level of money supply. The last 15 years in the US would suggest not.
If you want a currency which gives you stable or increasing purchasing power, then you need a stable monetary supply. There's no way that can be achieved with fiat money, the temptation to just create endless amounts of it is too great.
Deflation should be a welcomed sight in these times. It's falacious to think that somehow inflationism is better than deflationism. Lower prices would certainly cushion the blow for a lot of people, companies may lose in the dollar amount of profit per item, they can make it up in increased volume. Deflationary pressure aren't going to stop people from buying. Do people stop buying computers because they will be faster and cheaper in the future? No.
The government should back off, and let the market repair the chaos caused by it intervening in the economy. It was on it's way to doing that, the savings rate was higher and the trade deficit was shrinking until Helicopter Ben decided that was a bad thing and started ramping up the printing presses.
Letting an entity which acts on political motivations rather than economic motivations be in charge of the money supply is a terrible idea. The Constitution is clear on what should and should not be legal tender.
The government never seems to "support a stong dollar policy" except when the dollar is falling.. Strange.
A bit off-topic, but no thread really suits - is someone trying to make the Swiss koff up more rescue money?
Been watching someone attempt to dump a LOAD of euros specifically on the EURCHF pair, a couple hours ago (sucessfully), then again just now. In both cases the euro was supported, and moved sloooowly back up - but not rescued.
Happened on a general 'buy' day, after much Asian buying, juuuust before London opened and now, juuuust before New York opens. On options expiry day.
Any game theory specialists here, or am I being too tinfoil hat about this and it all really did have to do, as Bloomberg claims, with 'UK credit risk'?
(Not that the flood of bad news all last week or thru the weekend managed any big EUR dump at all....)
EURCHF is toxic as am sure you know.
I heard SNB was expected to support 1.38, also heard UBS buying good size around there.
'Tis indeed, and thanx, mephisto!
(Dunno why the Swiss even bothered floating their currency...I trade the EURUSD, won't touch the EURCHF, but damn it's sometimes nearly the same thing so closely do they follow. And so many pairs attached thereafter, sometimes it seems they take over the whole market almost.)
Yeah, I've heard the 1.38 number bandied about once or twice; and the 'drop-dead' level of *for sure* rescue from (avoidance of) 1.35, but who knows? Not me. It was just interesting watching that drama carry on the last few hours. It's definitely being supported, and definitely not being rescued.
heh...all things said & done maybe I'll just take my little 25-pip EUR profit off the table and call it an evening!
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